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Ben Rubenstein on Setpoint's purpose-built capital for scaling Proptech and residential fintech
Key Takeaways
- Setpoint provides capital specifically to residential fintech companies, enabling them to acquire properties, while simplifying the real estate process for consumers.
- The fund creates a special purpose vehicle (SPV) that buys the property, rather than lending directly to the venture-backed company.
- The homeowner or venture-backed firm also have to put up some capital as part of the process, and Setpoint maintains access to all operating accounts to manage risk.
- Setpoint differentiates itself by providing standardized reporting and tracking of transactions, addressing a major pain point in the emerging proptech industry.
Transcript
My name is Ben Rubenstein. I am the founder of Setpoint. Setpoint helps Proptech companies and residential fintech companies have access to capital and software to help them grow and scale their businesses.
It used to be that you and I just bought and sold homes from each other. But in the future, we will be companies in between us, making the process, the complex process which is, getting a loan, getting insurance, getting title, real estate, much, much simpler. There's many models making it easier for consumers to move, and every one of these models requires capital. So we have built a purpose-built fund to fund these residential fintech companies with capital to be able to acquire properties.
Our first fund, it's a two-year invest period, three-year harvest, but a potential one-year extension. So it's a 5 to 6-year fund. It is a very short-hold fund. The average time that one of our venture-backed companies holds properties is 45 days. Short-hold time is bridging somebody during this period. So the way buy before you sell works is I own one property. I want to move to another. If I sell too soon, I’ll have to go live somewhere temporarily. But this other property, I don't have enough capital to take on two mortgages. So I'm going to make a contingent offer. On my contingent offer, I'm going to actually lose out or cash offer or have to overpay for the cash offer. And so what we say is Homeward is an example. Pick out the house that you want. We will buy it for you. Consumer then moves into that house, sells their other house on the open market, and then buys the house back from Homeward. The average time for that to happen is about 45 days. And so we are lending to the venture-backed company to buy that house for 45 days. Everything we're doing right now is short-hold-time US residential real estate with venture-backed companies that we know.
Homeward is a great example because I'm on the board of the company, so I've watched their evolution. So when they first started, they go to fix and flip guys in fairly expensive capital who really didn't understand their business at all. As they start to scale, they've had access to senior debt, and then they've had to put mezz debt on top of that, and they'd still would have to either put up some of their own equity or have people like me provide them with capital. This is a really new space, and most banks don't understand this very well. And so because of this, Homeward has had a lot of pain in not only having access to capital but also the reporting required for that, and thus they have these complex inner creditor agreements between the senior debt and the mezz debt. Everything's in Excel. Everything's very manual. Very prone to human error. And it's very, very complex. So we're providing unitranche purposed built capital for them that understands this industry that comes with a very easy way to report on everything that's happening. And so they love it because it makes them be able to focus on what's most important, which is driving their business.
This is the early days of this new industry that's growing from half a percent and will be five, ten, 20% of all transactions. We want our fund to be sticky, and we want it to be differentiated. And the way we can differentiate is we know the pains are not just access to capital, but once you have that capital, actually reporting on it, tracking it, and having it be standardized. So this industry, it's the Wild West in some ways. And so we're going to bring standardization to it, to make it, so our capital is stickier, and our customers are happier.
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